Ahead of the meeting of the G-20 leaders over the weekend, India today made a pitch for continuation of economic stimulus, citing a fragile global recovery. At the same time, it made clear its opposition to the proposal for a tax on banks.
In a statement prior to his departure to Toronto for the G-20 Summit, Prime Minister Manmohan Singh said: “We have to be conscious that the recovery is still fragile and uneven. New worrying signs have emerged in the Euro zone.”
The statement comes even as European nations are seeking a return from the expansionary policy. Britain has already announced higher taxes and steep cuts in spending, while Italy has declared measures to lower its deficit. Canada, the host nation, is urging G-20 members to halve their budget deficits by 2013.
The United States has, however, warned that countries should avoid the mistakes of the 1930s, when stimulus was withdrawn too quickly. India is also against hasty withdrawal of the stimulus as its domestic economy may get affected. Besides, officials have said that the government has announced a strategy to lower its fiscal deficit.
India’s fiscal deficit is budgeted to decrease to 5.5 per cent of its gross domestic product (GDP) this year from 6.7 per cent projected last year, as the government has started withdrawing some of the stimulus measures put in place at the height of the global financial crisis in 2008 and early 2009. The finance ministry is targeting to lower the fiscal deficit to 4.1 per cent of GDP by 2012-13.
“We need to find a balance. For each country, the balance will be different, depending on where you are. We do not see fiscal consolidation necessary for us,” said an Indian official involved with the G-20 talks. The official also said India had already announced a road map for reducing its fiscal deficit.
Bank tax
While the sherpas (G-20 negotiators) have reached Toronto to try and iron out differences before the G-20 leaders meet over the weekend, the proposed tax on bank transactions to pay for future bailouts is one of the key issues on which there is no consensus.
“We do not like it. Several others also do not like it. Most of those who have money in the bank do not like it, while those who do not have (money) like it,” the Indian official said, while pointing out that the Indian banking system was strong and had weathered the global financial crisis largely unhurt.
“There is a difference in the level at which banks are, so you cannot tax everyone for some people… Why should we pay for other countries’ problems?” the official asked.
If the sherpas were unable to arrive at a consensus, individual governments would be left to decide for themselves, the official indicated. Britain has already proposed a levy, while Germany also intends to put in place a similar tax.
India will, however, push for strengthening the rules for its financial sector.
Over to Seoul?
With consensus on crucial issues still missing, the chances of Toronto turning into a review of the decisions taken at the previous summit are also not ruled out.
“London and Pittsburg were the relatively easier part since all countries were looking to stabilise the global financial system and get the economy back on track. Policy coordination across all G-20 member countries is not easy,” the Indian official said.
Already on aspects such as the Basel III reforms, the deadline for finalising the norms has been pushed to the November meeting in Korea as banks are lobbying for a deferment and dilution. Similarly, with the International Accounting Standards Board and the US Financial Accounting Standards Board unable to narrow their differences, the June 2011 deadline for stricter accounting rules is likely to be missed.
“The Toronto Summit will be three-fold — to ensure that global recovery is durable, balanced and sustainable; to calibrate exit strategies in light of growing concerns over expansionary fiscal policies; and to focus on medium and long-term structural issues relating to governance issues,” the Prime Minister said in his statement.
Negotiators said that if the sherpas and the leaders could not reach an agreement, they would try to see how they could carry forward these discussions in Seoul in November.
